Melbourne think tank the Grattan Institute has proposed a radical housing policy it claims could see Australia’s house prices fall by as much as 20 per cent – and once again, scrapping negative gearing is top of the list of policies.
The paper includes a suite of measures for state and federal governments to implement, such as less stringent planning procedures and major tax reforms.
It also raises the possibility that unless states take responsibility for the problem the federal government may be forced to cut immigration.
On the federal level, the paper called on the government to reduce capital gains tax concessions from 50 per cent to 25 per cent, and massively limit negative gearing on investment properties.
Under the proposed rules investors would only be able to deduct losses on investment properties from their investment income, not their salary or wage income.
This would make running an investment property at a loss much less financially attractive, which would reduce property speculation and therefore reduce house prices.
The paper also recommended changing the age pension assets test to include the value of a home above a set threshold. It recommended $500,000 as a potential figure.
Currently the value of your home is completely irrelevant to the amount of age pension you get – meaning you could be living in a $3 million home but still get the full age pension.
On the state level, the paper called on governments to extend land tax to owner occupied housing, and replace stamp duty with a general property tax.
It also proposed a number of measures to encourage greater density in inner and middle ring suburbs – mainly by relaxing planning rules and greater use of code-based assessment.
The Grattan Institute also called on the government to adopt a clear population policy, which may include a reduction in immigrant intake “if planning and infrastructure policies do not improve”.
“It took neglectful governments two decades to create the current housing affordability mess,” the report’s authors John Daley and Brendan Coates said.
“They preferred the easy choices that merely appear to address the problem. The politics of reform are fraught because most voters own a home or an investment property, and mistrust any change that might dent the price of their assets.
“But if governments keep pretending there are easy answers, housing affordability will just get worse. Older people will not be able to downsize in the suburb where they live, and our children won’t be able to buy their own home.”
Professor Peter Phibbs, head of urban and regional planning and policy at the University of Sydney, said he agreed with the Grattan Institute’s recommendations on negative gearing and stamp duty, but vigorously disagreed with those on planning rules.
He said Sydney had seen record numbers of dwelling approvals in recent years.
Alongside tax concessions, he said the key problem was low interest rates. He said the government needed to work more closely with the Reserve Bank of Australia in formulating monetary and fiscal policies.